Commodities, banks drag FTSE down 1.5% by midday

By Dominic Lau

LONDON, June 4 (Reuters) - Britain's blue chip index slid 1.5 percent by midday on Wednesday as a firmer dollar weighed on commodity prices, hitting miners and oil shares, while banks took a beating on fresh funding concerns.

By 1012 GMT, the FTSE 100 .FTSE was down 91.6 points at 5,966.1, losing its grip on the key 6,000 mark and tracking weakness in U.S. stocks overnight amid signals from the Federal Reserve that it would be reluctant to cut interest rates again because of dollar-led inflation.

The unusually explicit warning from Fed Chairman Ben Bernanke sent the dollar higher against other currencies, pushing down crude CLc1 and other commodity prices.

"The index points that come off the lower oil prices are larger than the index points that go on the stocks that might potentially benefit from lower oil prices," said Darren Winder, equity strategist at Cazenove.

Oil shares were the biggest sectoral loser, knocking 31 points off the index. BP (BP.L: Quote, Profile, Research) dropped 2.6 percent, Royal Dutch Shell (RDSa.L: Quote, Profile, Research) shed 2.4 percent and gas producer BG Group (BG.L: Quote, Profile, Research) lost 2.6 percent.

Miners also suffered, with BHP Billiton (BLT.L: Quote, Profile, Research), Rio Tinto (RIO.L: Quote, Profile, Research), Eurasian Natural Resources (ENRC.L: Quote, Profile, Research), Anglo American (AAL.L: Quote, Profile, Research), Xstrata (XTA.L: Quote, Profile, Research) and Vedanta Resources (VED.L: Quote, Profile, Research) off between 1.3 and 5 percent.

"The dollar actually rules the roost today," said Howard Wheeldon, a senior strategist at BGC Partners. "We are reminded that the dollar isn't just about oil, it has a significant effect on all commodities."

"Bernanke has told us what we probably had come to already accept but we needed the personal verification -- no more interest rate cuts."